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Telstra Group Ltd (ASX: TLS) shares have faced a challenging year. Today (13 Mrach 2024), the shares were hovering close to their 52-week low of AU$3.76. However, Bell Potter sees this recent weakness as an advantageous entry point for investors, presenting an opportunity for potential gains.
The leading broker, Bell Potter, has reevaluated Telstra shares in the wake of their recent downtrend, deeming them to be "starting to look reasonable value." Consequently, the broker has upgraded its rating on Telstra shares from hold to buy, accompanied by an AU$4.25 price target.
This upgraded rating suggests a potential upside of 12% for investors over the next 12 months, based on Telstra's current share price. Beyond this optimistic outlook, Bell Potter envisions a steady flow of dividends from the telecommunication giant in the coming years.
The broker forecasts fully franked dividends per share of 18 cents in FY 2024, followed by 19 cents in FY 2025 and 20 cents in FY 2026. If these predictions materialize, it would translate to dividend yields of 4.75%, 5%, and 5.3%, respectively. This dividend outlook contributes to a potential 12-month total return of approximately 17% for investors acquiring Telstra shares at the current levels.
Acknowledging the limited near-term catalysts to drive a re-rating of Telstra shares, Bell Potter emphasizes the company's low-risk growth as a compensating factor. Telstra's current FY25 PE ratio of <20x stands favorably compared to the average of similar companies in the S&P/ASX 20, which is approximately 23x.
While conceding that Telstra's growth outlook may not match some of its peers, such as Aristocrat, CSL, and Goodman Group, the broker underscores Telstra's reasonable growth forecast (mid to high single-digit EPS growth in FY25) and a robust dividend yield (forecast 5.0% fully franked in FY25).
Bell Potter also highlights the potential value unlock through the option of selling part or all of Telstra's Infrastructure business, which could drive a sum-of-the-parts valuation.
Despite the perceived lack of catalysts to prompt a re-rating of Telstra's multiple in the near term, Bell Potter maintains confidence in the company's ability to achieve its FY24 guidance. This expectation implies a more favorable second-half result relative to the first half, mitigating potential risks.
As investors weigh the potential rewards against the acknowledged challenges, Telstra's current valuation and dividend prospects position it as an appealing option in the telecommunications sector, according to Bell Potter's assessment.
